How banks are looking at the rise of fintech and their use of blockchain technology

Why banks are testing new technologies

When new technologies were initially being developed it was with a view to create a method of keeping records that wouldn’t require a third party to oversee its regulation. By giving multiple users access to these shared digital databases via a distributed ledger and utilising up-to-date securities that would make entries and the information it held unchangeable by outside parties it created a new, transparent and labour free way to record financial transactions. As the blockchain technology gathered momentum it became the underlying system that has given rise to the world of cryptocurrency – Bitcoin and the rising range of altcoins has started a revolution in digital currencies we can choose to use over our current and limited typical fiscal currency options.

A secure and labour free system

Creating this secure and efficient method of registering transactions blockchain has become an obvious move towards how we should be organising our banking, reducing inefficient human contribution and error, making the transaction effortless, immediate and in effect cost-free. Reducing cost is what is going to make the blockchain system highly competitive in today’s financial market, so much so it could put the banks out of business if they don’t follow suit and join the revolution.

That’s why nearly all banks are investing heavily in fintech research. Blockchain obviously is the primary concern but it’s not the only tech the banks have to consider, they now have to examine every new technology that offers up real competition and to make important changes to keep in line with where the future of our finance is heading. There has been much published research by many of the global banking giants reporting their own research on blockchain technology but very few so far have constructed a blockchain based system of their own to replace current methods, despite having started to patent their own devised blockchain technologies.

It’s so much more efficient

The main advantages of the banks such as Cambr Banking implementing blockchain tech have been outlined above; it’s so efficient it will reduce the costs associated to current methods and save them huge amounts of savings. Santander has said that through their research they estimate savings of up $20billion per year by switching over to a blockchain system. It’s not only the ease of the transaction being handled by the technology instead of being processed by human operation but the amount of regulation issued by the government over the banking industry will also be handled autonomously by its own software processes.

Healthy competition – but for who?

The rise of the fintech companies who are already using blockchain systems to handle such things as international payments, savings programs, financial remittances and more, means that the banks aren’t the only players to consider now, and for the consumer that means they aren’t beheld to one set of costs but now have not just another option to choose from, but many. All of these choices are great for us, the saver and spender, but for the banks it means a much smaller slice of the pie in future – or no slice at all if they can’t cut costs and compete.

It also means that with the banks investing in new technology solutions it doesn’t just leave the door open to the fintech start-ups being the only ones to disrupt the banking industry; the banks themselves are getting into a position where they too can create new systems and business models using data solutions and artificial intelligence to organise those new advancements in their own industry that has so far been implemented by the outsiders and newcomers to the finance world.

Where next?

The blockchain tech is primarily aimed at reorganising an outdated system with a highly improved and technologically sound upgrade. But just because we can reorganise the way we monitor and transact with our current financial currencies by no means will the use of this technology end there.

With the introduction of blockchain technology the rise of cryptocurrencies has indeed been its main application, and even despite their rollercoaster rise to mainstream use they are now an established way of organising your wealth. Aside from it being a fashionable tech opportunity this new system has also been offering itself as a marketplace to trade in, giving its users an alternative way to make profit from their finances to challenge the banks steady decline of their interest rates applicable to your savings from their traditional investment methods.

Banks are going to need to continue their development if they’re going to keep up with the new fintech kids on the block, whether they work independently or join forces to pool resources and forge new ways ahead together, they simply can’t afford to get left behind.

The future for banks looks gloomy with research projecting that the new technologies could be responsible for a loss of revenue of up to 40% by 2025 for banks and between 15% and 20% of US banks could have fallen or been consolidated into the new fintech companies as soon as 2020.

However, it’s not all doom and gloom for those who are willing to keep up. Analysing the effects of fintech on the banking industry the consultancy McKinsey have forecast that progressive banks could innovate and introduce new technologies to compete that could increase revenues from new offers by 5%, revenues from new products and digital sales by 10%, and also lower their typical current costs by automated processing with digital transactions by 30%. Adding all these factors would give the bank willing to move into this new area a possible profit of over 45% that would translate into a much higher and competitive financial success rate.

It’s an important time for banks to assess and continue to re-assess their business operations – from their high street branches through to how they manage every product and service on offer. The traditional methods of banking are founded on the cornerstone of a branch their customers can attend to fulfil their needs. The fintech alternatives are very much automated online systems cutting out the need and the expense for high rents and staff costs. How the banks are to manage this change in trend is just as big a question they will have to ask themselves as how to change their technology systems.

The future for banking is changing, that there is no doubt, but who will come out on top, in charge and in profit, is something we’ll just have to wait, watch and see.